Cryptocurrencies are recognized as volatile assets, and engaging in their trading can involve risk. The crypto market is also reputed for its capacity to undergo substantial price fluctuations. Similar to any other investment, there is always the possibility of your investment losing value, regardless of the apparent certainties. Nevertheless, trading risk management unquestionably assumes a pivotal role when it comes to investing in cryptocurrencies.
Basic Crypto Investing Mistakes to Avoid
When making investment decisions, it's crucial to be aware of your emotions. Fear and greed are the two most influential emotions in investing, impacting all risk-asset markets such as cryptocurrency and equity. Emotional investing often leads to buying at market tops and selling at market bottoms. Investors driven by greed may be tempted to purchase the latest hot cryptocurrency without conducting proper due diligence. To mitigate the risks associated with emotional investing, market participants should adopt sound investment strategies, including diversification, dollar-cost averaging, and implementing stop-losses. By maintaining discipline and adhering to these strategies, investors can minimize the negative effects of emotional decision-making.
Decades of experience in the risk asset market have led to the development of investment risk management tools like stop-loss and buy-limit orders. Cryptocurrency traders must utilize these tools to safeguard against market volatility, secure profits, and mitigate losses.
A stop-loss order automates token selling if it drops below a designated price, while buy-limit orders guarantee that you won't pay more than a specific price for a token. Both tools assist investors in navigating unpredictable markets. They are user-friendly and seamlessly integrated into your crypto trading strategy.
One of the key risks of cryptocurrency is the lack of security of your investments. To safely invest in cryptocurrencies, you need to activate 2FA, pass KYC verification, and use cold and hardware wallets. Another important element of your defensive strategy should be a VPN for crypto trading. With VPN crypto, you can bypass geo-restrictions and open a platform that is blocked in your area. This is also a great chance to protect your crypto investments since all data is encrypted before being sent. For example, VeePN uses 256-bit encryption, which is almost impossible to break at the current level of technological progress.
Investors often overlook the costs associated with buying and selling cryptocurrencies, such as transaction fees and platform charges. It is crucial to monitor these expenses as they directly impact your profitability and losses from crypto investing and trading.
Additionally, crypto investors must stay informed about newly implemented crypto tax regulations that may apply based on their location. Several countries, including the U.S. and India, have imposed capital gains taxes of more than 30% on crypto. Some governments have even introduced tax deducted at source (TDS) on crypto trading.
Diversifying your crypto portfolio is a straightforward and efficient approach to safeguarding your investment. This strategy aligns with the timeless wisdom of spreading your investments wisely and avoiding overconcentration.
Given the highly volatile nature of the crypto market and its ongoing development, it would be unwise to allocate all your investments to a single token. By doing so, you expose your portfolio to the uncertainties of the market.
Consider the possibility of the project you've invested in being compromised, losing market share to competitors over time, or even becoming obsolete due to emerging technologies. Also, consider splitting your assets into different wallets and exchanges. It is even possible to trade without KYC through the Chrome extension in a completely anonymous mode, albeit with some restrictions. As an investor, it's crucial to acknowledge the unpredictable nature of the future and to prepare for worst-case scenarios when making investment decisions.
#6 You Don't Do Market Analysis
Let's start with a phrase commonly used among enthusiasts of cryptocurrency: “Conduct thorough research on your own” (CTRYO).
The cryptocurrency industry has gained notoriety for its scams, hacks, and spread of false information. As an investor, it falls upon you to authenticate the credibility of crypto tokens and projects before considering any investments.
Investors should also remain vigilant about the utilization of celebrities and social media influencers to endorse crypto tokens. “Shilling” is a prevalent tactic where individuals promote tokens they already hold through various platforms like social media and newsletters, aiming to convince the general public to invest and drive up token prices.
The risk of making an ill-advised investment based on unverified online information remains significant. Hence, conducting thorough research on your own is a necessary step towards responsible crypto investing.
Day traders and short-term investors rely on technical analysis to determine buying and selling points for assets. Although technical analysis techniques have been developed over decades of experience in the equity market, they may not always be effective in the world of cryptocurrencies. Cryptocurrencies operate under unique market forces that influence their performance.
While it is still advisable to use technical analysis, crypto investors need to consider a cryptocurrency's tokenomics to anticipate vesting periods, whale activity, and emission schedules. These factors can undermine investment strategies that are solely based on traditional technical analysis techniques.
Is crypto worth investing in? If this is not your last money, you are aware of the risks and are ready to work, then yes. Complete your homework, rely on trustworthy sources instead of blindly trusting the internet, and resist FOMO. When your money is at stake in the market, it can be challenging to stay disciplined when facing a sell-off or a price surge. However, implementing straightforward risk-management tactics and practicing emotional mindfulness can truly make a significant impact.
Keep in mind the importance of diversifying your portfolio and giving priority to security when dealing with crypto wallets. Never invest an amount that you cannot afford to lose.